The intra-day impact of communication on euro-dollar volatility and jumps

Hans Dewachter, Deniz Erdemlioglu, Jean-Yves Gnabo and Christelle Lecourt

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: In this paper, we examine the intra-day effects of verbal statements and comments on the FX market uncertainty using two measures: continuous volatility and discontinuous jumps. Focusing on the euro-dollar exchange rate, we provide empirical evidence of how these two sources of uncertainty matter in measuring the short-term reaction of exchange rates to communication events. Talks significantly trigger large jumps or extreme events for approximately an hour after the news release. Continuous volatility starts reacting prior to the news, intensifies around the release time and stays at high levels for several hours. Our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe, and higher than normal. Disentangling the US and Euro area statements, we also find that abnormal levels of volatility are mostly driven by the communication of the Euro area officials rather than US authorities.

Date: 2013-03
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Journal Article: The intra-day impact of communication on euro-dollar volatility and jumps (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces13.04

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